Written by IFF Research

Apprenticeship pay, minimum wage rates and why these matter

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The government’s introduction of the National Minimum Wage (NMW) for apprentices in 2010 (the NMW more generally dates back to 1999) reflected a wish to improve the reputation of apprenticeships and protect apprentices from being at the mercy of market forces. Seven years on we assess the impact of these measures and share some of the key findings from the recently-published Apprenticeship Pay Survey 2016 carried out on behalf of the Department for Business, Energy and Industrial Strategy (BEIS).

You could of course let the market determine the pay of apprentices. Employers keen to attract the best candidates and those in areas or sectors with a short supply of potential apprentices might then naturally offer above average pay, while those with an oversupply of good candidates would be expected to offer a lower rate.

However, a free market for apprenticeship pay (indeed pay in general) hasn’t been the approach of the UK government. Instead National Minimum Wage and National Living Wage rates are set. The hourly minimum wage rate a person is entitled to depends on their age and whether they are an apprentice. The NMW apprentice rate is currently £3.50 an hour. This rate applies to apprentices aged under 19, and to those aged 19 or over in the first year of their apprenticeship. Apprentices in the second year of their apprentice are entitled to the NMW for their age group; if they are 25+ this is the much higher £7.50 an hour.

So what is the National Minimum Wage for apprentices trying to achieve, and what would the ideal level be?

Fundamentally the NMW for apprentices sought to improve the reputation of apprenticeships and to prevent apprentices being taken on as cheap labour and then discarded at the end of their training. At the same time the fact that the NMW for an apprentice is much lower than for a non-apprentice of the same age incentivises employers to take on apprentices and invest in training.

The ‘ideal’ level is a challenge:

  • Set too high and orthodox economic theory would suggest employers would either not take on apprentices or reduce the number.
  • Set too low, and assuming many employers pay exactly the minimum level, then the appeal of apprenticeships to individuals falls, potential apprentices will choose other options, and the economy as a whole suffers through underinvestment in training.

The history of the NMW for apprentices have seen relatively cautious increases, with one exception of a rise from £2.73 an hour to £3.30 in October 2015. This compares to a rise of just 3p in October 2013.

The NMW and the National Living Wage are set by government, following advice from the Low Pay Commission. A whole range of economic and other data on pay and the number of apprentices being trained is used as the basis of decisions on setting the NMW. For the NMW for apprentices one of these data sources is the Apprenticeship Pay Survey, which has been conducted by IFF on the last two occasions.

Key findings from the Apprenticeship Pay Survey 2016:

IFF’s most recent report into Apprenticeship Pay has just been published by DfE here. This comprised more than 9,400 interviews with apprentices, conducted in the summer of 2016. The survey shows:

  • Median basic pay for Level 2 and Level 3 apprentices was £6.70 an hour (up from £6.31 in 2014), and for Level 4 and 5 apprentices was £9.83 an hour (up from £9.68 in 2014).
  • There were large differences by framework, and the basic hourly pay figure for Level 2 and Level 3 apprentices was lowest in the Hairdressing framework (£3.47 median).
  • Results suggest that not all apprentices are paid the hourly rate they are entitled to. Among the apprentices for whom compliance could be assessed from their responses, 18% of Level 2 and 3 (an increase from 15% in 2014) and 5% of Level 4 or Level 5 apprentices were paid below the appropriate NMW or NLW.
  • Non-compliance was higher for younger apprentices (29% among 16-18 on Level 2 and 3 apprenticeships), those on their course for more than a year (31%), and those in Hairdressing on Level 2 or 3 provision (46%).

These are very much the tip if the iceberg in terms of the findings, and the report goes into great depth about earnings and the constituent elements of pay (basic pay, overtime, tips, etc.) and how these differ by demographics, country and level and framework/standard of the apprenticeship.

It will be interesting to see the Low Pay Commission’s recommended NMW for apprentices, and the Government’s final decision, both due in the coming months.